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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

FORM

10-Q

☑

QUARTERLY REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the quarterly period ended

August 2, 2025

☐

TRANSITION

REPORT PURSUANT

TO SECTION

13 OR 15(d)

OF THE SECURITIES

EXCHANGE

ACT OF

1934

For the transition period from ________________to__________________

Commission file number

1-31340

THE CATO CORPORATION

(Exact name of registrant as specified in its

charter)

Delaware

56-0484485

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

8100 Denmark Road

Charlotte

North Carolina

28273-5975

(Address of principal executive offices)

(Zip Code)

(704)

554-8510

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if

changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A - Common Stock, par value $.033 per share

CATO

New York Stock Exchange

Indicate

by check

mark

whether

the

registrant

(1)

has

filed

all

reports

required

filed

by Section

15(d)

the

Securities

Exchange Act of 1934

during the preceding 12

months (or for such shorter

period that the registrant

was required to file such

reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate

check

mark

whether

the

registrant

has

submitted

electronically

every

Interactive

Data

File

required

submitted

pursuant to Rule

405 of Regulation

S-T (§232.405

of this chapter)

during the preceding

12 months (or

for such shorter

period that the

registrant was required to submit such files).

Yes

Indicate by

check mark

whether the

registrant is

a large

accelerated filer,

an accelerated

filer, a

non-accelerated filer,

a smaller

reporting

company,

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller

reporting

company,” and “emerging growth

company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

emerging

growth

company,

indicate

check

mark

the

registrant

has

elected

not

use

the

extended

transition

period

for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b

-2 of the Exchange Act). Yes

☐

☒

As of August 2, 2025, there were

17,962,676

shares of Class A common stock and

1,763,652

shares of Class B common stock outstanding.

THE CATO CORPORATION

FORM 10-Q

Quarter Ended August 2, 2025

Table

of Contents

Page No.

PART

I – FINANCIAL INFORMATION

(UNAUDITED)

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Income and Comprehensive Income

For the Three Months and Six Months Ended August

2, 2025 and August 3, 2024

Condensed Consolidated Balance Sheets

At August 2, 2025 and February 1, 2025

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended August 2, 2025 and August

3, 2024

Condensed Consolidated Statements of Stockholders’ Equity

5 – 6

For the Three Months and Six Months Ended August

2, 2025 and August 3, 2024

Notes to Condensed Consolidated Financial Statements

7 – 21

For the Three Months and Six Months Ended August

2, 2025 and August 3, 2024

Item 2.

Management’s Discussion and Analysis

of Financial Condition and

Results of Operations

22 – 29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART

II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART

I FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

Three Months Ended

Six Months Ended

August 2, 2025

August 3, 2024

August 2, 2025

August 3, 2024

(Dollars in thousands, except per share data)

REVENUES

Retail sales

174,653

166,934

343,072

342,206

Other revenue (principally finance charges, late fees and

layaway charges)

1,856

1,694

3,679

3,521

Total revenues

176,509

168,628

346,751

345,727

COSTS AND EXPENSES, NET

Cost of goods sold (exclusive of depreciation shown

below)

111,467

109,122

220,784

221,627

Selling, general and administrative (exclusive of

depreciation

shown below)

57,371

58,181

112,696

114,933

Depreciation

2,525

2,329

5,089

4,369

Interest and other income

(1,393)

(1,742)

(2,594)

(7,563)

Costs and expenses, net

169,970

167,890

335,975

333,366

Income before income taxes

6,539

738

10,776

12,361

Income tax (benefit) expense

(293)

643

635

1,292

Net income

6,832

10,141

11,069

Basic earnings per share

0.35

0.01

0.51

0.54

Diluted earnings per share

0.35

0.01

0.51

0.54

Comprehensive income:

Net income

6,832

10,141

11,069

Net unrealized gain (loss) on available-for-sale securities

for each of the three and

six months ended

August 2, 2025 and August 3, 2024, respectively

676

106

(72)

Comprehensive income

6,900

771

10,247

10,997

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

August 2, 2025

February 1, 2025

ASSETS

(Dollars in thousands)

Current Assets:

Cash and cash equivalents

34,225

20,279

Short-term investments

56,550

57,423

Restricted cash

2,675

2,799

Accounts receivable, net of allowance for customer credit losses of

641

and $

581

at August 2, 2025 and February 1, 2025, respectively

26,152

24,540

Merchandise inventories

97,273

110,739

Prepaid expenses and other current assets

8,941

7,406

Total Current Assets

225,816

223,186

Property and equipment – net

57,641

60,326

Other assets

20,201

19,979

Right-of-Use assets – net

133,228

148,870

Total Assets

436,886

452,361

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable

85,448

88,641

Accrued expenses

35,353

41,717

Accrued employee benefits and bonus

326

Accrued income taxes

343

Current lease liability

53,877

57,555

Total Current Liabilities

175,347

188,239

Other noncurrent liabilities

13,340

13,485

Lease liability

76,018

88,341

Stockholders' Equity:

Preferred stock, $

100

par value per share,

100,000

authorized,

none

issued

Class A common stock, $

0.033

par value per share,

50,000,000

shares authorized;

17,962,676

shares and

18,313,929

issued at August 2, 2025 and February 1, 2025, respectively

607

619

Convertible Class B common stock, $

0.033

par value per share,

15,000,000

shares authorized;

1,763,652

issued at August 2, 2025 and February 1, 2025

Additional paid-in capital

130,180

129,530

Retained earnings

41,076

31,935

Accumulated other comprehensive income

259

153

Total Stockholders' Equity

172,181

162,296

Total Liabilities and Stockholders' Equity

436,886

452,361

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(UNAUDITED)

Six Months Ended

August 2, 2025

August 3, 2024

(Dollars in thousands)

Operating Activities:

Net income

10,141

11,069

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation

5,089

4,369

Provision for customer credit losses

442

338

Purchase premium and premium amortization of investments

(464)

(577)

(Gain) on sale of assets held for investment

(34)

(4,223)

Share-based compensation

587

840

(Gain) loss on disposal of property and equipment

(37)

Changes in operating assets and liabilities which provided

(used) cash:

Accounts receivable

(2,054)

1,041

Merchandise inventories

13,466

2,631

Prepaid and other assets

(1,756)

(1,891)

Operating lease right-of-use assets and liabilities

(357)

(775)

Accrued income taxes

646

Accounts payable, accrued expenses and other liabilities

(9,383)

(4,728)

Net cash provided by operating activities

15,640

8,836

Investing Activities:

Expenditures for property and equipment

(2,362)

(4,799)

Purchase of short-term investments

(12,906)

(31,396)

Sales of short-term investments

14,349

37,703

Sales of other assets

5,165

Net cash (used in) provided by investing activities

(885)

6,673

Financing Activities:

Dividends paid

(7,050)

Repurchase of common stock

(995)

(2,237)

Proceeds from employee stock purchase plan

191

Net cash used in financing activities

(933)

(9,096)

Net increase in cash, cash equivalents, and restricted cash

13,822

6,413

Cash, cash equivalents, and restricted cash at beginning of period

23,078

27,913

Cash, cash equivalents, and restricted cash at end of period

36,900

34,326

Non-cash activity:

Accrued other assets and property and equipment expenditures

334

721

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income

Equity

(Dollars in thousands, except per share data)

Balance — February 1, 2025

678

129,530

31,935

153

162,296

Comprehensive income:

Net income

3,309

Unrealized net gain on available-for-sale securities, net of

deferred income tax benefit of $

Class A common stock sold through employee stock purchase

plan

Other

(73)

Share-based compensation issuances and exercises

(2)

Share-based compensation expense

184

Repurchase and retirement of treasury shares

(10)

(897)

(907)

Balance — May 3, 2025

666

129,786

34,274

191

164,917

Comprehensive income:

Net income

6,832

Unrealized net gain on available-for-sale securities, net of

deferred income tax benefit of $

Other

Share-based compensation expense

394

Repurchase and retirement of treasury shares

(60)

Balance — August 2, 2025

666

130,180

41,076

259

172,181

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Accumulated

Additional

Other

Total

Common

Paid-in

Retained

Comprehensive

Stockholders'

Stock

Capital

Earnings

Income

Equity

(Dollars in thousands, except per share data)

Balance — February 3, 2024

694

126,953

64,279

395

192,321

Comprehensive income:

Net income

10,974

Unrealized net loss on available-for-sale securities, net of

deferred income tax benefit of $

(748)

Dividends paid ($

0.17

per share)

(3,523)

Class A common stock sold through employee stock purchase

plan

189

190

Share-based compensation issuances and exercises

Share-based compensation expense

(84)

Repurchase and retirement of treasury shares

(14)

(2,223)

(2,237)

Balance — May 4, 2024

694

127,058

69,512

(353)

196,911

Comprehensive income:

Net income

Unrealized net gain on available-for-sale securities, net of

deferred income tax benefit of $

676

Dividends paid ($

0.17

per share)

(3,527)

Class A common stock sold through employee stock purchase

plan

Share-based compensation expense

858

872

Balance — August 3, 2024

694

127,951

66,094

323

195,062

See notes to condensed consolidated financial statements (unaudited).

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 1 - GENERAL

The condensed

consolidated financial

statements as

of August

2, 2025

and for

the three

and six

months

ended August

2, 2025

and August

3, 2024

have been

prepared from

the accounting

records of

The Cato

Corporation and

its wholly-owned

subsidiaries (the

“Company”), and

all amounts

shown are

unaudited.

In the

opinion of

management, all

adjustments considered

necessary for

a fair

statement of

the financial

statements have

been included.

All such

adjustments are

of a

normal, recurring

nature unless

otherwise

noted.

The results of the interim periods

may not be indicative of the results expected for the entire year.

The interim financial

statements should be read

in conjunction with

the consolidated financial statements

and

notes

thereto,

included

the

Company’s

Annual

Report

Form

10-K

for

the

fiscal

year

ended

February 1,

2025.

Amounts as

of February

1, 2025

have been

derived from the

audited annual

financial

statements, but

do not

include all

disclosures required by

accounting principles

generally accepted in

the

United States of America.

On February 16, 2024, the Company closed

on the sale of land held

for investment. The sale resulted in a

net

gain

3.2

million

and

included

Interest

and

other

income

the

accompanying

Condensed

Consolidated Statements of Income and Comprehensive Income

in the first quarter of fiscal 2024.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 2 - EARNINGS PER SHARE:

Accounting Standard Codification (“ASC”) 260 –

Earnings Per Share

requires dual presentation of basic and

diluted Earnings Per Share

(“EPS”) on the face of

all income statements for

all entities with complex

capital

structures.

The Company has presented one basic EPS and one diluted EPS amount for all common shares in

the accompanying

Condensed Consolidated

Statements of

Income and

Comprehensive Income.

While the

Company’s certificate

of incorporation

provides the

right for

the Board of

Directors to

declare dividends

Class

without

declaration

commensurate

dividends

Class

shares,

the

Company

has

historically paid the same dividends to both Class A and Class B shareholders and the

Board of Directors has

resolved to continue this practice.

Accordingly, the Company’s allocation of income for purposes of the EPS

computation is the same

for Class A and

Class B shares and

the EPS amounts reported

herein are applicable

to both Class A and Class B

shares.

Basic

EPS

computed

net

income

less

earnings

allocated

non-vested

equity

awards

divided

the

weighted average

number of

common shares

outstanding for

the period.

Diluted EPS

reflects the

potential

dilution

that

could

occur

from

common

issuable

through

stock

options

and

the

Employee

Stock

Purchase Plan, of which there were

none for the periods presented

below.

Three Months Ended

Six Months Ended

August 2, 2025

August 3, 2024

August 2, 2025

August 3, 2024

(Dollars in thousands, except per share data)

Numerator

Net earnings

6,832

10,141

11,069

Less: Earnings allocated to non-vested equity awards

(319)

(531)

(583)

Net earnings available to common stockholders

6,513

104

9,610

10,486

Denominator

Basic weighted average common shares outstanding

18,809,364

19,297,484

18,747,100

19,327,137

Diluted weighted average common shares outstanding

18,809,364

19,297,484

18,747,100

19,327,137

Net income per common share

Basic earnings per share

0.35

0.01

0.51

0.54

Diluted earnings per share

0.35

0.01

0.51

0.54

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME:

The

following

table

sets

forth

information

regarding

the

changes

Accumulated

other

comprehensive

income (in thousands) for the

three months ended August 2, 2025:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at May 3, 2025

191

Other comprehensive income before

reclassification

Amounts reclassified from accumulated

other comprehensive income to net income

Net current-period other comprehensive income

Ending Balance at August 2, 2025

259

(a) All amounts are net-of-tax.

The

following

table

sets

forth

information

regarding

the

changes

Accumulated

other

comprehensive

income (in thousands) for the

six months ended August 2, 2025:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 1, 2025

153

Other comprehensive income before

reclassification

140

Amounts reclassified from accumulated

other comprehensive income to net income (b)

(34)

Net current-period other comprehensive income

106

Ending Balance at August 2, 2025

259

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 3 – ACCUMULATED OTHER COMPREHENSIVE INCOME

(CONTINUED):

The

following

table

sets

forth

information

regarding

the

changes

Accumulated

other

comprehensive

income (in thousands) for the

three months ended August 3, 2024:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at May 4, 2024

(353)

Other comprehensive income before

reclassification

776

Amounts reclassified from accumulated

other comprehensive income (b)

100

Net current-period other comprehensive income

676

Ending Balance at August 3, 2024

323

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes $

130

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

The

following

table

sets

forth

information

regarding

the

changes

Accumulated

other

comprehensive

income (in thousands) for the

six months ended August 3, 2024:

Changes in Accumulated Other

Comprehensive Income (a)

Unrealized Gains

and (Losses) on

Available-for-Sale

Securities

Beginning Balance at February 3, 2024

395

Other comprehensive income before

reclassification

714

Amounts reclassified from accumulated

other comprehensive income (b)

786

Net current-period other comprehensive loss

(72)

Ending Balance at August 3, 2024

323

(a) All amounts are net-of-tax. Amounts in parentheses indicate a debit/reduction to accumulated other comprehensive income.

(b) Includes

$1,022

impact of Accumulated other comprehensive income reclassifications into Interest and other

income for net realized gains on available-for-sale securities. The tax impact of this reclassification was $

236

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 4 – FINANCING ARRANGEMENTS:

On March

13,

2025, the

Company, as

borrower, and

certain

other domestic

subsidiaries, as

borrowers

and

guarantors, entered

into a

Credit Agreement

(the “ABL

Credit Agreement”)

and related

loan documents,

and

among

the

Company,

certain

other

the

Company’s

domestic

subsidiaries,

and

Wells

Fargo

Bank,

National Association,

as the

lender (the

“Lender”), to

establish an

asset-based revolving

credit facility

(the

“ABL

Facility”)

amount

35.0

million.

The

proceeds

from

the

ABL

Facility

may

used

provide funding for ongoing working capital

and general corporate purposes.

The ABL Credit Agreement is committed through

May 2027

and is secured primarily by inventory and third-

party

credit

card

receivables.

There

were

borrowings

outstanding

and

the

availability

under

the

facility

was $

30.0

million before

giving effect

to a

3.0

million outstanding

letter of

credit that

reduced borrowing

availability to $

27.0

million as of August 2, 2025.

The weighted average interest rate under the credit facility

was

zero

at August 2, 2025 due to

outstanding borrowings.

NOTE 5 – REPORTABLE SEGMENT INFORMATION:

The

Company

has

determined

that

has

four

operating

segments,

defined

under

ASC

280

–

Segment

Reporting

, including Cato,

It’s Fashion, Versona

and Credit.

As outlined in

ASC 280-10, the Company

has

two

reportable segments: Retail and Credit.

The Company has aggregated its

three

retail operating segments,

including

e-commerce,

based

on the

aggregation

criteria

outlined in

ASC

280-10, which

states that

two

more operating segments may be aggregated into a single reportable segment if aggregation is consistent with

the

objective

and

basic

principles

ASC

280-10,

which

require

the

segments

have

similar

economic

characteristics, products, production processes, clients and

methods of distribution.

The

Company’s

retail

operating

segments

have

similar

economic

characteristics

and

similar

operating,

financial and

competitive risks.

The products

sold in each

retail operating

segment are

similar in

nature, as

they

all

offer

women’s

apparel,

shoes

and

accessories.

Merchandise

inventory

the

Company’s

retail

operating

segments

sourced

from

the

same

countries

and

some

the

same

vendors,

using

similar

production processes.

Merchandise for the Company’s retail operating segments is distributed to retail stores

similar

manner

through

the

Company’s

single

distribution

center

and

subsequently

distributed

customers in a

similar manner. The

Company operates

its

women’s

fashion

specialty

retail

stores

states as of August 2, 2025, principally in the southeastern United States.

The Company offers its own credit card to its

customers and all credit authorizations, payment processing

and collection

efforts are

performed by

a wholly-owned

subsidiary of

the Company.

The Company

does

not allocate certain corporate expenses to the Credit segment.

The Company’s

President and

Chief Executive Officer

is the

Company’s chief

operating decision

maker

(“CODM”).

The

structure described

above reflects

the

manner in

which

the

CODM regularly

assesses

information

for

decision-making

purposes,

including

the

allocation

resources.

The

Company

also

provides corporate

services, including

finance, information

technology,

and corporate

administration, to

its segments which are fully allocated to the retail segment. Interest and other income from assets held for

investment and

sale are

not included

in assessing

the segments’

performance and

therefore not

allocated

to either segment.

The

CODM

manages

and

evaluates

the

segments’

operating

performance

based

segment

sales,

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

expenses, and

profit or

loss from

operations before

income taxes

as presented

in the

Company’s

annual

budget and forecasting process,

as well as

monthly analyses of budget-to-actual

and prior year

variances.

Segment

expenses

and

other

items

primarily

include

cost

goods

sold,

selling,

general

and

administrative

expenses,

depreciation

and

interest

and

other

income.

Assessment

and

approval

all

capital

expenditures

are

determined

support

and

based

the

needs

the

retail

segment;

however,

the

CODM

does

not

evaluate

performance

allocate

resources

based

segment

asset

balances and, therefore, total segment assets are not presented in the

tables below.

The accounting

policies of

the segments

are the

same as

those described

in the

Summary of

Significant

Accounting Policies in Note 1 of the consolidated financial statements included in the Company’s Annual

Report

Form

10-K

for

the

fiscal

year

ended

February

2025.

The

Company

evaluates

segment

performance based on segment income before income taxes.

The following schedule summarizes certain segment

information (in thousands):

Three Months Ended

August 2, 2025

Retail

Credit

Total

Revenues

175,856

653

176,509

Cost of goods sold

111,467

Selling, general, and administrative (a)

40,130

414

40,544

Corporate overhead

16,827

Depreciation

2,525

Interest and other income

(89)

(288)

(377)

Segment income before income taxes

4,996

527

5,523

Corporate interest and other income

(1,016)

Income before income taxes

6,539

Capital expenditures

1,343

Six Months Ended

August 2, 2025

Retail

Credit

Total

Revenues

345,433

1,318

346,751

Cost of goods sold

220,784

Selling, general, and administrative (a)

79,289

801

80,090

Corporate overhead

32,606

Depreciation

5,089

Interest and other income

(192)

(592)

(784)

Segment income before income taxes

7,857

1,109

8,966

Corporate interest and other income

(1,810)

Income before income taxes

10,776

Capital expenditures

2,362

(a) Selling, general, and administrative expense

include corporate and store payroll, related payroll

taxes and

benefits, insurance, supplies, advertising, bank and credit

card processing fees.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 5 – REPORTABLE SEGMENT INFORMATION

(CONTINUED):

Three Months Ended

August 3, 2024

Retail

Credit

Total

Revenues

167,954

674

168,628

Cost of goods sold

109,122

Selling, general, and administrative (a)

40,946

416

41,362

Corporate overhead

16,819

Depreciation

2,328

2,329

Interest and other income

(97)

(284)

(381)

Segment income (loss) before income taxes

(1,164)

541

(623)

Corporate interest and other income

(1,361)

Income before income taxes

738

Capital expenditures

1,538

Six Months Ended

August 3, 2024

Retail

Credit

Total

Revenues

344,384

1,343

345,727

Cost of goods sold

221,627

Selling, general, and administrative (a)

81,915

823

82,738

Corporate overhead

32,195

Depreciation

4,368

4,369

Interest and other income

(188)

(518)

(706)

Segment income before income taxes

4,467

1,037

5,504

Corporate interest and other income

(6,857)

Income before income taxes

12,361

Capital expenditures

4,799

(a) Selling, general, and administrative expense

include corporate and store payroll, related payroll

taxes and

benefits, insurance, supplies, advertising, bank and credit

card processing fees.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 6 – STOCK-BASED COMPENSATION:

As of August

2, 2025, the

Company’s 2018 Incentive

Compensation Plan allows

for the granting

of various

forms of equity-based awards,

including restricted stock

and stock options for

grant to officers, directors

and

key employees.

The

following

table

presents

the

number

options

and

restricted

stock

initially

authorized

and

available for grant under this plan as

of August 2, 2025:

2018

Plan

Options and/or restricted stock initially authorized

4,725,000

Options and/or restricted stock available for grant

2,853,875

accordance

with

ASC

718

–

Compensation–Stock Compensation

the

fair

value

current

restricted

stock awards

is estimated

on the

date of

grant based

on the

market price

of the

Company’s

stock and

amortized to compensation expense on a straight-line basis

over the related vesting periods. As of

August

2, 2025

and February

1, 2025,

there was

5,548,000

and $

7,276,000

, respectively,

of total

unrecognized

compensation

expense

nonvested

restricted

stock

awards,

which

had

remaining

weighted-

average vesting period of

1.9

years for both periods. The total compensation expense during the three and

six

months

ended

August

2025

was

394,000

and

578,000

respectively,

compared

total

compensation

expense

872,000

and

806,000

for

the

three

and

six

months

ended

August

2024,

respectively.

This

compensation

activity

classified

component

Selling,

general

and

administrative expenses in the Condensed Consolidated Statements of Income.

The following summary

shows the changes

in the number

of shares of

unvested restricted stock

outstanding

during

the six months ended

August

2, 2025:

Weighted Average

Number of

Grant Date Fair

Value

Per Share

Restricted stock awards at February 1, 2025

1,215,181

8.98

Granted

Vested

(225,924)

12.89

Forfeited or expired

(68,274)

8.33

Restricted stock awards at August 2, 2025

920,983

8.07

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 6 – STOCK BASED-COMPENSATION (CONTINUED):

The

Company’s

Employee

Stock

Purchase

Plan

allows

eligible

full-time

employees

purchase

limited

number of

of the

Company’s

Class

Common Stock

during each

semi-annual offering

period

% discount through payroll

deductions. During the six

months ended August 2,

2025 and August 3,

2024,

the

Company

sold

21,736

and

38,910

employees

average

discount

0.50

and

0.87

per

share, respectively, under

the Employee Stock

Purchase Plan. The

compensation expense recognized

for the

% discount

given under

the Employee

Stock Purchase

Plan was

11,000

and $

34,000

for the

six months

ended

August

2025

and

August

2024,

respectively.

These expenses

are

classified

component

Selling, general and administrative expenses in

the Condensed Consolidated Statements of Income.

NOTE 7

– FAIR VALUE MEASUREMENTS:

The following

tables

set forth

information regarding

the

Company’s financial

assets and

liabilities that

are

measured at fair value (in thousands)

as of August 2, 2025 and

February 1, 2025:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

August 2, 2025

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

337

Corporate Bonds

52,946

U.S. Treasury/Agencies Notes and Bonds

2,035

Cash Surrender Value of Life Insurance

9,485

Commercial Paper

1,232

Total Assets

66,035

56,550

9,485

Liabilities:

Deferred Compensation

(8,358)

Total Liabilities

(8,358)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 7

– FAIR VALUE MEASUREMENTS

(CONTINUED):

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

February 1, 2025

Assets

Inputs

Description

Level 1

Level 2

Level 3

Assets:

State/Municipal Bonds

1,244

Corporate Bonds

51,326

U.S. Treasury/Agencies Notes and Bonds

4,624

Cash Surrender Value of Life Insurance

9,301

Asset-backed Securities (ABS)

229

Total Assets

66,724

57,423

9,301

Liabilities:

Deferred Compensation

(8,548)

Total Liabilities

(8,548)

The

Company’s

investment

portfolio

was

primarily

invested

corporate

bonds

and

taxable

governmental

debt

securities

held

managed

accounts

with

underlying

ratings

better

August

2025

and

February

2025.

The

state,

municipal

and

corporate

bonds

and

asset-backed

securities

have

contractual

maturities

which

range

from

13 days

2.9

years.

The

U.S.

Treasury/Agencies

notes

and

bonds

have

contractual maturity of up to

7 months

Additionally,

August

2025,

the

Company

had

deferred

compensation

plan

assets

9.5

million.

February 1,

2025, the

Company had

deferred compensation

plan assets

of $

9.3

million.

These assets

are

recorded within Other assets in the Condensed

Consolidated Balance Sheets.

Level 2 investment

securities include

corporate, state

and municipal

bonds for

which quoted

prices may

not

be available

on active

exchanges for

identical instruments.

Their fair

value is

principally based

on market

values determined by management with the assistance of a third-party pricing service.

Since quoted prices in

active markets

for identical assets

are not

available, these prices

are determined

by the

pricing service using

observable market information such as quotes from less active markets and/or quoted prices of securities with

similar characteristics, among other factors.

Deferred compensation plan

assets consist of

life insurance policies.

These life insurance

policies are valued

based on the cash surrender value of the insurance contract, which is determined based on

such factors as the

fair value of the underlying assets and discounted cash flow and are therefore classified within

Level 3 of the

valuation

hierarchy.

The

Level

liability

associated

with

the

life

insurance

policies

represents

deferred

compensation obligation,

the value

of which

is tracked

via underlying

insurance funds’

net asset

values, as

recorded

Other

noncurrent

liabilities

the

Condensed

Consolidated

Balance

Sheet.

These

funds

are

designed to mirror mutual funds and money

market funds that are observable and

actively traded.

The

following

tables

summarize

the

change

fair

value

the

Company’s

financial

assets

and

liabilities

measured using Level 3 inputs for the six months ended August 2, 2025 and the

year ended February 1, 2025

(in thousands):

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 7

– FAIR VALUE MEASUREMENTS

(CONTINUED):

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 1, 2025

9,301

Total gains or (losses):

Included in interest and other income (or

changes in net assets)

184

Ending Balance at August 2, 2025

9,485

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 1, 2025

(8,548)

Redemptions

566

Additions

(129)

Total (gains) or losses:

Included in interest and other income (or

changes in net assets)

(247)

Ending Balance at August 2, 2025

(8,358)

Fair Value

Measurements Using

Significant Unobservable

Asset Inputs (Level 3)

Cash Surrender Value

Beginning Balance at February 3, 2024

8,586

Total gains or (losses):

Included in interest and other income (or

changes in net assets)

715

Ending Balance at February 1, 2025

9,301

Fair Value

Measurements Using

Significant Unobservable

Liability Inputs (Level 3)

Deferred Compensation

Beginning Balance at February 3, 2024

(8,654)

Redemptions

1,175

Additions

(220)

Total (gains) or losses:

Included in interest and other income (or

changes in net assets)

(849)

Ending Balance at February 1, 2025

(8,548)

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 8 – RECENT ACCOUNTING PRONOUNCEMENTS:

In December 2023,

the FASB

issued ASU 2023-09,

Income Taxes

(Topic

740): Improvements

to Income

Tax

Disclosures

which

modifies

the

requirements

income

tax

disclosures

require

disaggregated

information about

a reporting

entity’s

effective

tax rate

reconciliation as

well as

information on

income

taxes paid.

This guidance

is effective

for fiscal

years beginning

after December

15, 2024

for all

public

business entities, with

early adoption and

retrospective application permitted.

The Company is

currently

the

process

evaluating

the

potential

impact

adoption

this

new

guidance

its

consolidated

financial statements and related disclosures. The required disclosures will be included in our 2025 Annual

Report on Form 10-K.

November

2024,

the

FASB

issued

ASU

2024-03,

Income

Statement—Reporting

Comprehensive

Income—Expense

Disaggregation

Disclosures

(Subtopic

220-40):

Disaggregation

Income

Statement

Expenses

which

requires

public

entities

disclose,

annual

and

interim

basis,

disaggregated

information

the

footnotes

about

specified

information

certain

costs

and

expenses.

This

guidance is effective for annual periods beginning after December 15, 2026 and for interim periods within

fiscal years beginning after December 15, 2027, with early adoption permitted.

The Company is currently

the

process

evaluating

the

potential

impact

adoption

this

new

guidance

its

consolidated

financial statements and related disclosures.

NOTE 9 – INCOME TAXES:

The Company had

an effective tax

rate for the

first six months

of 2025 of

5.9

% compared to

an effective

tax

rate

10.5

for

the

first

six

months

fiscal

2024.

Income tax

expense

for

the

first

six

months

decreased to

0.6

million in fiscal

2025 from an

income tax expense

of $

1.3

million in fiscal

2024.

The

decrease

tax

expense in

2025

primarily due

reductions in

foreign income

taxes

and

favorable

adjustment to the federal net operating loss carryback claim as

a result of the Coronavirus Aid, Relief and

Economic Security Act (CARES Act), partially offset by an increase in state income

taxes.

On July 4,

2025, the One Big

Beautiful Bill Act

(the “OBBBA”) was

signed into law.

The Company has

considered the impact

of the

OBBBA in

the second

quarter of fiscal

2025 and concluded

the changes

not have a material impact on the Company’s effective tax rate.

NOTE 10 – COMMITMENTS AND CONTINGENCIES:

The Company is, from time to time, involved in routine litigation incidental to the conduct of its business,

including

litigation

regarding

the

merchandise

that

sells,

litigation

regarding

intellectual

property,

litigation instituted

by persons

injured upon

premises under

its control,

litigation with

respect to

various

employment

matters,

including

alleged

discrimination and

wage

and

hour

litigation,

and

litigation

with

present or former employees.

Although such

litigation is

routine and

incidental to

the conduct

of the

Company’s business,

as with

any

business

its

size

with

significant

number

employees

and

significant

merchandise

sales,

such

litigation could

result in

large

monetary awards.

Based on

information currently

available, management

does

not

believe

that

any

reasonably

possible

losses

arising

from current

pending litigation

will

have

material adverse

effect

on the

Company’s

condensed consolidated

financial statements.

However,

given

the

inherent uncertainties

involved in

such

matters,

an adverse

outcome in

one or

more of

such

matters

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

could

materially and

adversely affect

the

Company’s

financial condition,

results of

operations and

cash

flows

any

particular

reporting

period.

The

Company

accrues

for

these

matters

when

the

liability

deemed probable and reasonably estimable.

NOTE 11 – REVENUE RECOGNITION:

The

Company

recognizes

sales

the

point

purchase

when

the

customer

takes

possession

the

merchandise

and

pays

for

the

purchase,

generally

with

cash

credit.

Sales

from

purchases

made

with

Cato

credit,

gift

cards

and

layaway

sales

from

stores

are

also

recorded

when

the

customer

takes

possession of

the merchandise. E-commerce

sales are

recorded when the

risk of

loss is

transferred to the

customer.

Gift cards

are recorded

as deferred

revenue until they

are redeemed

or forfeited.

Gift cards

not have expiration dates. Layaway transactions are recorded as

deferred revenue until the customer takes

possession or

forfeits the

merchandise. A

provision is

made for

estimated merchandise

returns based

sales

volumes

and

the

Company’s

experience;

actual

returns

have

not

varied

materially

from

historical

amounts.

provision

made

for

estimated

write-offs

associated

with

sales

made

with

the

Company’s

proprietary

credit

card.

Amounts

shipping

and

handling

billed

customers

sales

transaction are

classified as

Other revenue

and the

costs related

to shipping

product to

customers (billed

and accrued) are classified as Cost of goods sold.

The Company

offers its

own proprietary

credit card

to customers.

All credit

activity is

performed by

the

Company’s

wholly-owned

subsidiaries.

None

the

credit

card

receivables

are

secured.

The

Company

estimated customer credit losses

of $

227,000

and $

442,000

for the three

and six months

ended August 2,

2025,

respectively,

compared

166,000

and

338,000

for

the

three

and

six

months

ended

August

2024,

respectively.

Sales

purchased

the

Company’s

proprietary

credit

card

for

the

three

and

six

months

ended

August

2025

were

5.7

million

and

11.1

million,

respectively,

compared

5.6

million and $

11.3

million for the three and six months ended August 3, 2024, respectively.

The

following

table

provides

information

about

receivables

and

contract

liabilities

from

contracts

with

customers (in thousands):

Balance as of

August 2, 2025

February 1, 2025

Proprietary Credit Card Receivables, net

10,816

10,848

Gift Card Liability

5,671

7,541

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 12 – LEASES:

The

Company determines

whether

arrangement is

lease

inception.

The

Company

has

operating

leases for

stores,

offices,

warehouse space

and equipment.

Its leases

have remaining

lease terms

one

year

10 years

, some of which include options to

extend the lease term for

up to five years

, and some of

which

include

options

terminate

the

lease

within one year

The

Company considers

these

options

determining

the

lease term

used

establish its

right-of-use assets

and lease

liabilities. The

Company’s

lease agreements do not contain any material residual value guarantees or material

restrictive covenants.

most

the

Company’s

leases

not

provide

implicit

rate,

the

Company

uses

its

estimated

incremental

borrowing

rate

based

the

information

available

commencement

date

the

lease

determining the present value of lease payments.

The components of lease cost are shown below (in thousands):

Three Months Ended

August 2, 2025

August 3, 2024

Operating lease cost

16,496

16,808

Variable

lease cost (a)

420

463

(a) Primarily related to monthly percentage rent for stores not presented on the balance sheet.

Six Months Ended

August 2, 2025

August 3, 2024

Operating lease cost

33,084

33,810

Variable

lease cost (a)

858

960

(a) Primarily related to monthly percentage rent for stores not presented on the balance sheet.

THE CATO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED

AUGUST 2, 2025 AND AUGUST 3,

2024

NOTE 12 – LEASES (CONTINUED:

Supplemental cash flow

information and non-cash

activity related to

the Company’s

operating leases are

as follows (in thousands):

Operating cash flow information:

Three Months Ended

August 2, 2025

August 3, 2024

Cash paid for amounts included in the measurement of lease liabilities

14,829

15,481

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

12,224

913

Six Months Ended

August 2, 2025

August 3, 2024

Cash paid for amounts included in the measurement of lease liabilities

29,363

31,088

Non-cash activity:

Right-of-use assets obtained in exchange for lease obligations, net of rent violations

13,430

1,357

Weighted-average

remaining

lease

term

and

discount

rate

for

the

Company’s

operating

leases

are

follows:

As of

August 2, 2025

August 3, 2024

Weighted-average remaining lease term

2.1

years

1.8

years

Weighted-average discount rate

5.92%

4.74%

As of August 2,

2025, the maturities

of lease liabilities by

fiscal year for

the Company’s

operating leases

are as follows (in thousands):

Fiscal Year

2025 (a)

31,303

2026

48,424

2027

32,528

2028

20,105

2029

10,482

Thereafter

3,017

Total lease payments

145,859

Less: Imputed interest

15,964

Present value of lease liabilities

129,895

(a) Excluding the six months ended August 2, 2025

THE CATO CORPORATION

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION:

The

following

information

should

read

along

with

the

unaudited

Condensed

Consolidated

Financial

Statements,

including

the

accompanying

Notes

appearing

this

Form

10-Q.

Any

the

following

are

“forward-looking”

statements

within

the

meaning

Section

27A

the

Securities

Act

1933,

amended,

and

Section

21E

the

Securities

Exchange Act

1934,

amended:

(1)

statements

this

Form 10-Q

that

reflect projections

or expectations

of our

future financial

economic performance;

(2)

statements

that

are

not

historical

information;

(3)

statements

our

beliefs,

intentions,

plans

and

objectives for

future operations;

(4) statements

relating to

our operations

or activities

for our

fiscal year

ending January

31, 2026

(“fiscal 2025”)

and beyond,

including, but

not limited

to, statements

regarding

expected

amounts

capital

expenditures

and

store

openings,

relocations,

remodels

and

closures,

statements

regarding

the

potential

impact

public

health

threats

and

responses

and

mitigation

efforts,

well

the

potential

impact

supply

chain

disruptions,

extreme

weather

conditions,

trade

policies, inflationary

pressures and

other economic

conditions on

our business,

results of

operations and

financial condition

and statements regarding

new store

development strategy; and

(5) statements

relating

to our future

contingencies. When possible, we

have attempted to

identify forward-looking statements by

using

words

such

“will,”

“expects,”

“anticipates,”

“approximates,”

“believes,”

“estimates,”

“hopes,”

“intends,” “may,”

“plans,” “could,” “would,”

“should” and any

variations or negative

formations of such

words

and

similar

expressions.

can

give

assurance

that

actual

results

events

will

not

differ

materially

from

those

expressed

implied

any

such

forward-looking

statements.

Forward-looking

statements

included

this

report

are

based

information

available

the

filing

date

this

report,

but

subject

known

and

unknown

risks,

uncertainties and

other

factors

that

could

cause

actual

results

differ

materially

from

those

contemplated

the

forward-looking

statements.

Such

factors

include, but are

not limited to,

the following:

any actual or

perceived deterioration in the

conditions that

drive

consumer

confidence

and

spending,

including,

but

not

limited

to,

prevailing

social,

economic,

political and public health

threats and uncertainties, levels of

unemployment, fuel, energy and

food costs,

inflation, wage rates, tax rates, tariffs, interest rates, home values, consumer net worth and the

availability

credit;

changes

laws,

regulations

government policies

affecting

our

business, including

but

not

limited to

tariffs

and taxes;

uncertainties regarding

the impact

any governmental

action regarding,

responses

to,

the

foregoing

conditions;

competitive

factors

and

pricing

pressures;

our

ability

predict

and

respond

rapidly

changing

fashion

trends

and

consumer

demands;

our

ability

successfully

implement our new store development strategy to increase new store openings and

our ability of any such

new

stores

grow

and

perform

expected;

underperformance

other

factors

that

may

lead

continuation or acceleration

of store

closures and negatively

affect the

Company’s profitability,

financial

condition

and

prospects;

adverse

weather,

public

health

threats

(including

the

COVID-19

other

pandemics),

acts

war

aggression

similar

conditions

that

may

affect

our

sales

operations;

inventory

risks

due

shifts

market

demand,

including

the

ability

liquidate

excess

inventory

anticipated

margins;

adverse

developments

volatility

affecting

the

financial

services

industry

broader

financial

markets;

and

other

factors

discussed

under

“Risk

Factors”

Part

Item

our

annual

report

Form 10-K

for

the

fiscal

year

ended February

2025

(“fiscal

2024”),

amended or

supplemented,

and in

other reports

file

with

furnish

the

Securities and

Exchange

Commission

(“SEC”)

from time

time.

not

undertake, and

expressly

decline,

any obligation

update

any

such forward-looking information contained

in this report,

whether as a

result of new

information, future

events, or otherwise.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The

Company’s

critical

accounting

policies

and

estimates

are

fully

described

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations”

Part

II,

Item

the

Company’s Annual Report on

Form 10-K for the

fiscal year ended February

1, 2025. The preparation

of the

Company’s

financial

statements in

conformity

with

generally

accepted accounting

principles in

the

United

States (“GAAP”) requires management to make estimates and assumptions about future events that affect the

amounts reported in the

financial statements and accompanying

notes. Future events

and their effects cannot

determined

with

absolute

certainty.

Therefore,

the

determination

estimates

requires

the

exercise

judgment. Actual results

inevitably will differ

from those estimates,

and such differences

may be material

the

financial

statements.

The

most

significant

accounting

estimates

inherent

the

preparation

the

Company’s financial

statements include

the calculation

of potential

asset impairment,

income tax

valuation

allowances,

reserves

relating

self-insured

health

insurance,

workers’

compensation,

general

and

auto

insurance

liabilities,

uncertain

tax

positions,

the

allowance

for

customer

credit

losses,

and

inventory

shrinkage.

The Company’s critical accounting policies and

estimates are discussed with the Audit Committee.

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS:

The following table sets forth, for the periods indicated, certain items in

the Company's unaudited Condensed

Consolidated Statements of Income as a

percentage of total retail sales:

Three Months Ended

Six Months Ended

August 2, 2025

August 3, 2024

August 2, 2025

August 3, 2024

Total retail sales

100.0

Other revenue

1.1

1.0

1.1

1.0

Total revenues

101.1

101.0

101.1

101.0

Cost of goods sold (exclusive of

depreciation)

63.8

65.4

64.4

64.8

Selling, general and administrative

(exclusive of depreciation)

32.8

34.9

32.8

33.6

Depreciation

1.4

1.5

1.3

Interest and other income

(0.8)

(1.0)

(0.8)

(2.2)

Income before income taxes

3.7

0.4

3.1

3.6

Net income

3.9

0.1

3.0

3.2

THE CATO CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)

RESULTS OF OPERATIONS

(CONTINUED):

Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

(“MD&A”)

intended

provide

information

assist

readers

better

understanding

and

evaluating

our

financial

condition and results of

operations. We recommend reading

this MD&A in conjunction

with our Condensed

Consolidated Financial

Statements and

the Notes

to those

statements included in

the “Financial

Statements”

section of this Quarterly Report on

Form 10-Q, as well as our 2024

Annual Report on Form 10-K.

Recent Developments

Tariff

Pressures

significant

quantity

our

products

are

made

China and

Southeast

Asia. The

products

from these

countries are subject

to the newly

implemented reciprocal tariffs,

as well as

an additional Section

301 ad

valorem

tariff

Chinese

products.

the

second

quarter,

products

from

China

were

subject

the

Section

301 ad

valorem tariffs

and

products sourced

from all

other countries

were

subject to

reciprocal

tariffs.

During

the

second

quarter,

these

tariffs

increased

our

costs

associated

with

receipted

products

made

China and

Southeast Asia.

Excluding China,

reciprocal tariffs

will

increasing

100%,

resulting in

rates of

19% to

20%, depending

on the

country.

anticipate that

our product

acquisition

costs in

the back

half of

the third

quarter and

the remainder

of the

fiscal year

will be

impacted by

these

additional costs.

These cost increases will negatively impact our results of operations and financial condition unless we are

able to

successfully mitigate

their effects

by increasing

retail pricing

without losing

sales and/or

sharing

these

costs

with

our

vendors.

Certain

product

CATO CORP 10-Q